Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 8th, 2014
Benefit Briefs
Workers Would Trade Control for Guaranteed Income
Current workers and retirees would trade control of managing their retirement assets in an income solution for investment growth, flexibility and guaranteed lifetime income, a survey finds. When asked to name the most important products or features they wanted in an income plan, 60% of respondents to the “Finding the Right Mix: Retirement Income Attitudes and Preferences” study from the LIMRA Secure Retirement Institute selected the potential for investment growth. Flexibility in changing the amount of income was chosen by 55% of those surveyed, and just more than half say income that is guaranteed for life is most important to them. When asked to rank their top five plan features in terms of priority, guaranteed lifetime income received the highest average score.
Human resources consulting firm Buck Consultants at Xerox is making changes to its retirement plans. The Buck Consultants Retirement Plan, a defined benefit pension plan, will be frozen, effective January 1, 2015. At the same time, the Buck Consultants Savings Plan (a 401(k) plan) will be enhanced with an increased company match and a broader definition of eligible pay.
Buyer's Market
Wilshire Associates Incorporated announced the launch of two indices designed to provide insight into an investment category that is difficult to benchmark—liquid alternatives. One index, called The Wilshire Liquid Alternative Index, aims to deliver a broad market measure for the performance of diversified liquid alternative investment strategies that are implemented in mutual fund structures. The other index, known as the Wilshire Focused Liquid Alternative Index, embeds screening criteria designed to help firms build and monitor investable liquid alternative products in other formats, such as exchange-traded funds (ETFs).
Industry Voices
Insights: Language Barriers
My kids are learning to speak two languages, and as I do not speak the second well (their exposure comes from their caregiver, classes and play dates with friends), there can be trying times when they attempt to express themselves and my husband and I don’t understand. What we thought was cute babbling from my younger daughter when first learning to speak was actually Spanish; she was asking for something, staring at us with the expectation that we’d help—but  not understanding why we didn’t. How often does that disconnect happen in your workplace? Maybe it starts with you, the plan sponsor, failing to comprehend why participants don’t take steps to save more to improve their retirement outcomes; maybe it’s the participants seemingly frustrated because you can’t give a specific answer when they ask, “What should I do?”
Economic Events
In the week ending August 2, the advance figure for seasonally adjusted initial claims for unemployment insurance was 289,000, a decrease of 14,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised up by 1,000 from 302,000 to 303,000. The four-week moving average was 293,500, a decrease of 4,000 from the previous week’s revised average. This is the lowest level for this average since February 25, 2006 when it was 290,750. The previous week’s average was revised up by 250 from 297,250 to 297,500. The average interest rate for a 30-year fixed-rate mortgage is 4.14%, up from 4.12% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.27%, up from 3.23%.
Market Mirror
Thursday, the Dow closed 75.07 points (0.46%) lower at 16,368.27, the NASDAQ decreased 20.08 points (0.46%) to 4,334.97, and the S&P 500 fell 10.67 points (0.56%) to 1,909.57. The Russell 2000 lost 5.79 points (0.51%) to finish at 1,119.76, and the Wilshire 5000 was down 103.03 points (0.51%) at 20,216.38. On the NYSE, 3.2 billion shares traded, with a slight lead for decliners. On the NASDAQ, 2.8 billion shares changed hands, with 1.8 declining issues for every advancing issue. The price of the 10-year Treasury note increased 17/32, decreasing its yield to 2.414%. The price of the 30-year Treasury bond climbed 29/32, bringing its yield down to 3.226%.
Rules & Regulators
Appellate Court Sends RJR Stock Drop Suit Back for Review
A lower court applied the wrong standard when determining that R.J. Reynolds Tobacco Company (RJR) proved its fiduciary breach did not cause losses to retirement plan participants, an appellate court ruled. In a case alleging that RJR breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) when it removed and sold Nabisco stock from its plan without a proper investigation into the prudence of doing so, the 4th U.S. Circuit Court of Appeals agreed with a district court finding that RJR did breach its fiduciary duty of procedural prudence and so bore the burden of proving that this breach did not cause loss to the plan participants. But, the appellate court found the lower court failed to apply the correct legal standard in assessing RJR’s argument that its breach did not cause losses to participants.
Anheuser-Busch Pension Participants Owed Enhanced Benefits
A federal appellate court has determined that certain participants of Anheuser-Busch’s pension plan are due enhanced benefits as a result of actions following the firm’s acquisition by InBev. The 6th U.S. Circuit Court of Appeals found that the language of the plan document section about a “change in control” requires only that the individual’s “employment with the Controlled Group” be involuntarily terminated, not that the individual experience a job loss or some otherwise undefined period of unemployment.
Financial Sense
Alternative Investments Boost State Pensions’ Returns
State pension systems earned a median 7.2% annualized return over the 10 years ended June 30, 2013, with individual pension fund returns ranging from 5.0% to 8.8%, according to Cliffwater LLC. The “Cliffwater 2014 Report on State Pension Asset Allocation and Performance” finds that efforts by state pension systems to do better than a simple mix of stocks and bonds through alternative investments has been largely rewarded. Real estate and private equity allocations, where there is a large sample of 10-year returns, performed well.
During June, exchange-traded funds (ETFs) worldwide collected $33 billion in net flows, $10 billion higher than the prior month, according to a report from Strategic Insight (SI). The June “ETF FlowWatch” report from SI, an Asset International company, also finds that for June, equity ETFs from the U.S., Europe and Asia raised $34 billion, of which $24 billion came from the United States. Bond and ‘other’ ETFs saw slight redemptions, while mixed ETF flows remained flat for the month.
DB Plan Sponsors to See Extended Funding Relief
A bill awaiting President Barack Obama’s signature would provide extended funding relief for defined benefit (DB) retirement plan sponsors. The bill provides temporary funding to ensure that the Highway Trust Fund does not run out of money, in part from lowering corporate tax deductions and increasing corporate taxes from allowing companies to defer pension funding requirements. The bill extends relief provided in the Moving Ahead for Progress in the 21st Century Act (MAP-21)—passed in 2012—which allowed defined benefit plans to discount future benefit payments to a present value using a 25-year average of bond rates rather than a two-year average. In a report from Moody’s Investor Services, Wesley Smyth, vice president and senior accounting analyst for Moody’s in New York City, notes that the Congressional Budget Office estimated that the new legislation would result in $18 billion of additional tax revenue, this year through 2019. Using an assumed tax rate of 35%, this additional revenue would equal more than $51 billion in lower deductions (i.e., pension contributions).
Small Talk
ON THIS DATE:  In 1876, Thomas Edison received a patent for the mimeograph. The mimeograph was a “method of preparing autographic stencils for printing.” In 1899, the refrigerator was patented by A.T. Marshall. In 1966, Michael DeBakey became the first surgeon to install an artificial heart pump in a patient. In 1974, U.S. President Nixon announced that he would resign the following day. In 1978, the U.S. launched Pioneer Venus II, which carried scientific probes to study the atmosphere of Venus. In 1991, the U.N. Security Council approved North and South Korea for membership. And now it’s time for FRIDAY FILES!
How to cool a drink in two minutes.
How to fold a shirt in two seconds.
In Pittsburgh, Pennsylvania, a 35-year-old woman who had left a concert noticed a car idling in the parking lot. There was no one in the driver’s seat, and despite someone in the passenger seat and another person in the back seat, she got into the driver’s seat and announced she was taking the car to drive to where her car was parked. Turns out, the car was an unmarked police car, and the two individuals in the car were undercover police officers. The third undercover officer had stepped out to make a phone call. Before the woman could take off, the officer in the passenger’s seat went around the car and removed the woman from the driver’s seat, and after a brief struggle she was arrested. According to the Pittsburgh Post-Gazette, one officer wrote in a police report the woman had, “an overwhelming odor of alc.oholic beverage emanating from her person.” In Shrewsbury, Massachusetts, police responded to 911 calls from motorists who spotted a 69-year-old man doing yard work—sans clothes. According to the Smoking Gun, the responding officer spotted the man “completely nu.de, blowing off his driveway with a leaf blower.” The man was “intoxicated and belligerent towards police” when questioned. He was arrested for “open and gross lewdness.”
Apparently, this kid has a future in broadcasting, and apparently, he has never, ever been on live television before.
In Stillwater, Minnesota, a café has come up with a controversial solution to help pay workers a higher minimum wage—charging customers a “minimum wage fee.” It is adding a 35-cent fee to meal tabs. The café owner said the fee is needed to offset the 75-cent wage hike that took effect August 1. Even with only half a dozen servers, the owner says it will cost him $10,000 more a year to pay servers $8 an hour instead of the federal rate of $7.25 an hour, the Minneapolis Star Tribune reports. It has set off a firestorm of debate, with the café being inundated with phone calls and people taking to Facebook to encourage others to boycott the roadside cafe. A café manager said they are shocked at what’s going on. “We’re all appalled at the response for just protecting … employees. We’re just doing what we have to do.” In Wagoner, Oklahoma, teachers returned to school this week, and one new teacher made a bad first impression. The 49-year-old woman was arrested Monday after she showed up for her first day of work at Wagoner High School into.xicated, pantless and shoeless, according to the Wagoner Police Department. “She was found in an empty classroom by an assistant principle,” the police chief at the Wagoner Police Department told ABC News. “He found her with no pants on. He has never seen her before.” The woman told a police officer she was drinking orange juice and vod.ka on her way to work. She said there was more stocked up in her car, which was parked in the school parking lot.
A beautiful example of strangers coming together for the common good.
In Rome, Italy, an American couple was so shocked at what they were charged for ice cream and water at a restaurant they called police. The couple went to a cafe with a relative for some sweet treats after dinner, and got three ice creams and a bottle of water. The server brought them a bill for $56. “We’d just paid 59 euros for our entire dinner, including a liter of wine, and then were charged 42 euros for gelato!” the husband told The Local. The server informed the couple that they had actually gotten a break because the normal $3.35 per-person cover charge had been waived. They paid the bill, but returned the following day with police to investigate the legality of the charges. Police found that the prices were clearly written down on the menu and ruled that nothing illegal had occurred. In Costa Mesa, California, surveillance video at the El Pollo Loco showed a man climbing through the drive-through window and ransacking the cash register in a failed attempt to find money. Later that day, the man was wearing the same clothes as in the video—a green T-shirt and a hat emblazoned with a bright pink face—when he showed up to eat lunch there. The restaurant manager called police who arrested him on multiple counts of burglary. Have a wonderful weekend!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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